At the end of December, Memphis Mayor A.C. Wharton Jr and other city and county officials filed suit against Wells Fargo for allegedly targeting black homeowners for high-interest subprime mortgages.
Similar suits have been filed against the bank in the past two years for so-called “irresponsible” lending practices.
“I think this lawsuit is just as questionable as the other similar suits that have been filed against Wells Fargo making similar claims,” said Hans von Spakovsky, senior legal fellow at the Heritage Foundation and manager of their Civil Justice Reform Initiative. “Cities apparently are trying to use frivolous lawsuits to make up for the fact that their property tax revenues have decreased because of the general decline in property values.”
A case in Baltimore argues that Wells Fargo’s lending practices tipped hundreds of homeowners into foreclosure and cost the city millions of dollars in taxes. Last summer, Illinois AG Lisa Madigan brought a lawsuit against the bank, accusing them of marketing high-cost mortgage loans to black and Latino customers, while offering lower-cost loans to white borrowers with similar incomes.
“There is no real evidence that bankers were discriminating on the base of race in their lending,” von Spakovsky said.
The Memphis suit contends that one of every eight Wells Fargo loans in predominantly black neighborhoods in Shelby County resulted in foreclosure, compared with only one in 59 such loans in white neighborhoods. Mayor Wharton concluded that Wells Fargo offered one loan option for whites and another for blacks, and that many black homeowners could have qualified for prime-rate mortgages, thereby saving themselves tens of thousands of dollars over the life of their mortgages.
“I would question the reliability of the statistics cited, given that similar studies over the past two decades that were produced as ‘evidence’ that bankers were supposedly discriminating in mortgage lending have turned out to be based on faulty methodology and faulty data,” von Spakovsky said. “I also seriously doubt that the studies being relied on in this case take into account all of the factors used to analyze the creditworthiness of potential borrowers.”
